Friday, February 28, 2003

This One Looks Dodgy

Well I thought I'd just about heard everything there was to hear about the possibility of war with Iraq, but this one certainly takes the buscuit: it's going to be a handy excuse to get round the embarassing details of the growth and stability pact. In case you think this is me exaggerating I'll quote the venerable Financial Times: "A war in Iraq would at least provide the EU with a way of retaining some credibility for the stability pact in the face of Germany's chronic economic problems", quote, unquote. Come to think of it with so many 'experts' pontificating that the war with Iraq is already priced into the markets, we might ask ourselves whether the possibility that the underlying economic problem may have nothing to do with the war has been 'priced in' yet.

Hopes that Europe's biggest economies would eliminate their budget deficits by 2006 were receding on Tuesday, amid renewed concern about the economic impact of a war against Iraq. The European Commission refused to rule out the possibility of suspending the European Union's stability pact - the eurozone's budget rules - in the event of war. Meanwhile, Germany said it was seeking talks with Britain and France to discuss a programme for balancing budgets across the eurozone. There are now rising expectations that the EU might be forced to postpone again its deadline for reaching "close to balance" budgets within the zone. Last June, EU finance ministers agreed to give France, Germany, Italy and Portugal until 2004 to balance their budgets; that deadline was later moved to 2006.But with sluggish growth across Europe and finance ministers seeking to blame the Iraqi crisis for a worsening outlook, even that deadline may have to be revised. On Tuesday the European Commission said: "If there were to be a war we would look at any measures that were appropriate and might need to be taken". A war in Iraq would at least provide the EU with a way of retaining some credibility for the stability pact in the face of Germany's chronic economic problems.
Source: Financial Times
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